Cost Object
Definition: Whatever you're trying to measure the cost of.
Examples of Cost Objects
| Cost Object | Level |
|---|---|
| Single unit | Most granular |
| Batch / production run | Group of units |
| Product line | All units of one type |
| Department | Organizational unit |
| Customer | External party |
| Project | Time-bounded work |
| Geographic region | Location-based |
Why It Matters
The same cost can be direct or indirect depending on which cost object you choose:
| Cost | Direct to... | Indirect to... |
|---|---|---|
| Factory supervisor salary | Manufacturing division | Individual product unit |
| Machine depreciation | Product line using that machine | Individual unit |
| Battery in electric vehicle | Specific vehicle | Factory as a whole |
The Key Insight
Direct vs indirect isn't an inherent property of the cost—it's a relationship between the cost and the cost object you've selected.
Common Trap
Assuming a cost is "just indirect" without asking "indirect to what?" First identify the cost object, then classify.
North: Where this comes from
- Cost Classification Framework (parent framework)
- Management Decision-Making (why we need to measure costs differently)
East: What opposes this?
- Aggregate Costing (treating all costs at company level)
South: Where this leads
- Direct vs Indirect Costs (classification depends on cost object choice)
- Activity-Based Costing (more granular cost object selection)
- Customer Profitability Analysis (customer as cost object)
West: What's similar?
- Unit of Analysis (research methods—what are you studying?)
- Granularity in Data (same data, different zoom levels)